Thursday, March 7, 2013

Flaws in the Austerity Debate - Remember Triffin

With a friend who belongs since long to the Fondad Network (John Williamson) I had a discussion on the austerity debate (see, for an interesting article,"Paul DeGrauwe and the Rehn of Terror" by Paul Krugman).

In one of my letters I said:

"Following up on the austerity debate, I see a
serious neglect of the world system aspect of the crisis in most analyses, in
both the euro crisis and the international crisis. Rather than focusing on the
way the crisis has emerged and developed, the debate focuses completely on the
worrisome level of government debt, "inflexible" labour markets, and
insufficiently regulated and supervised banks -- to name three features that
experts, politicians and journalists discuss endlessly.

This framing and narrowing down of the discussion is
fair enough if its purpose is to focus on certain aspects of the crisis. But it
is not fair if its purpose is to prevent a broader and more fundamental analysis
of and response to the crisis.

A second flaw in the debate about the (euro) crisis
is that most experts, politicians and journalists reduce the debate to policies
that they see as adequate responses to the crisis. So they present austerity as
the solution to the government debt problem, "reform" of labour markets
(i.e. reducing wages and making it easier to fire workers) as the
solution to the problem (what exactly is the problem?) of inflexible labour markets, and better regulation and
supervision as the answer to the problem of having to bail out banks.

I have long hoped for a more serious
discussion of the crisis that would have departed from how the crisis emerged
and developed in the international capitalist system. As you know, it started in
some weak, sensitive parts of the system, spread to other parts of it, and ended
up in creating, among other, the euro crisis. A serious analysis of the crisis
would have suggested other responses than the current ones. Current policy
responses are basically geared at crisis management instead of crisis
resolution and crisis prevention.

I find it depressing and a shame that most analyses are superficial, flawed and
misdirected. In such way it will be difficult, if not impossible, to resolve the
crisis and prevent future crises.

Finally, I think that we should analyse the crisis
not only from an economic point of view but also from a political and (socio)
psychological point of view. Otherwise, we will not come up with proper
responses."

The picture above is of Robert Triffin and me, taken during an interview I had with him in 1985 at his room at the University of Louvain-la-Neuve. I have written several articles about Triffin, when he was still alive and active, and after he passed away in 1993. In my bio as member of the board of the Triffin Foundation you can read a little bit of how important Triffin has been for me, and still is.

About Me

As a kid I liked numbers and the sound of strings. I considered studying engineering but chose social sciences because of my interest in people. I combine a theoretical interest with a practical, social approach which brought me to the sphere of policy research. I am interested in reducing the disparity between poor and rich, between the powerful and the less powerful.
In 1973 and 1982 I lived in Latin America. In the mid-1980s, I was able to create an international forum to discuss the functioning of the international monetary system and the debt crisis, the Forum on Debt and Development (FONDAD). I established it with the view that the debt crisis of the 1980s was a symptom of a malfunctioning, flawed global monetary and financial system.
I was one of the driving forces behind the creation of the European Network on Debt and Development that was established at the end of the 1980s to help put pressure on European policymakers.
In 1990, before the beginning of the Gulf War, I cofounded the Golfgroep, a discussion group about international politics comprising journalists, scientists, politicians and activists that meets regularly.
The website of FONDAD is www.fondad.org